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Double Dipping in Environmental Markets

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  • Woodward, Richard T

Abstract

There is an increasing tendency to use markets to induce the provision of environmental services. As such markets increase in scope, potential market participants might sell multiple environmental services. The question we consider here is whether participants in such markets should be allowed to sell credits in more than one market simultaneously. Some have argued in favor of such “double dipping,” because it would make the provision of environmental services more profitable. In practice, however, most programs do not allow doubledipping. We show that if the optimal level of pollution abatement is sought, then double-dipping maximizes societal net benefits. However, if pollution policies are set in a piecemeal fashion, then the caps for each market are unlikely to be optimal and, in this second-best setting, a policy prohibiting double dipping can lead to greater social net benefits. We explore conditions under which a singlemarket policy is preferred, or equivalently, where piecemeal policies are likely to yield particularly inefficient outcomes.

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  • Woodward, Richard T, 2010. "Double Dipping in Environmental Markets," MPRA Paper 26185, University Library of Munich, Germany.
  • Handle: RePEc:pra:mprapa:26185
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    Cited by:

    1. repec:eee:resene:v:52:y:2018:i:c:p:124-136 is not listed on IDEAS
    2. Stranlund, John K. & Son, Insung, 2015. "Prices versus Quantities versus Hybrids in the Presence of Co-pollutants," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205422, Agricultural and Applied Economics Association;Western Agricultural Economics Association.
    3. Jimena González-Ramírez & Catherine L. Kling & Adriana Valcu, 2012. "An Overview of Carbon Offsets from Agriculture," Annual Review of Resource Economics, Annual Reviews, vol. 4(1), pages 145-160, August.
    4. repec:eee:ecoser:v:29:y:2018:i:pa:p:137-144 is not listed on IDEAS
    5. repec:eee:ecoser:v:15:y:2015:i:c:p:84-92 is not listed on IDEAS
    6. Carson Reeling & Richard D. Horan & Cloé Garnache, 2018. "Multi-Pollutant Point-Nonpoint Trading with Participation Decisions: The Role of Transaction Costs," CESifo Working Paper Series 7152, CESifo Group Munich.
    7. repec:eee:jeeman:v:85:y:2017:i:c:p:130-145 is not listed on IDEAS
    8. Karen Fisher-Vanden & Sheila Olmstead, 2013. "Moving Pollution Trading from Air to Water: Potential, Problems, and Prognosis," Journal of Economic Perspectives, American Economic Association, vol. 27(1), pages 147-172, Winter.
    9. Yeo, Boon-Ling & Anastasiadis, Simon & Kerr, Suzi & Browne, Oliver, 2012. "Synergies between Nutrient Trading Scheme and the New Zealand Greenhouse Gas (GHG) Emissions Trading Scheme (ETS) in the Lake Rotorua Catchment," 2012 Conference, August 31, 2012, Nelson, New Zealand 144270, New Zealand Agricultural and Resource Economics Society.
    10. Crago, Christine L. & Stranlund, John K., 2015. "Optimal regulation of carbon and co-pollutants with spatially differentiated damages," 2015 AAEA & WAEA Joint Annual Meeting, July 26-28, San Francisco, California 205594, Agricultural and Applied Economics Association;Western Agricultural Economics Association.
    11. G. Cornelis van Kooten & Craig Johnston & Zhen Xu, 2012. "Economics of Forest Carbon Sequestration," Working Papers 2012-04, University of Victoria, Department of Economics, Resource Economics and Policy Analysis Research Group.
    12. Valcu, Adriana Mihaela, 2013. "Agricultural nonpoint source pollution and water quality trading: empirical analysis under imperfect cost information and measurement error," ISU General Staff Papers 201301010800004451, Iowa State University, Department of Economics.
    13. James Shortle & Richard D. Horan, 2013. "Policy Instruments for Water Quality Protection," Annual Review of Resource Economics, Annual Reviews, vol. 5(1), pages 111-138, June.

    More about this item

    Keywords

    Environmental policy; tradable discharge permits; numerical methods; stacking;

    JEL classification:

    • H41 - Public Economics - - Publicly Provided Goods - - - Public Goods
    • Q0 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - General
    • Q58 - Agricultural and Natural Resource Economics; Environmental and Ecological Economics - - Environmental Economics - - - Environmental Economics: Government Policy

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